Shanghai Sheng Jian Environment Technology Co., Ltd. (SHSE:603324) Stock Rockets 33% But Many Are Still Ignoring The Company

Shanghai Sheng Jian Environment Technology Co., Ltd. (SHSE:603324) shareholders would be excited to see that the share price has had a great month, posting a 33% gain and recovering from prior weakness. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

In spite of the firm bounce in price, given about half the companies in China have price-to-earnings ratios (or "P/E's") above 28x, you may still consider Shanghai Sheng Jian Environment Technology as an attractive investment with its 23.7x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Shanghai Sheng Jian Environment Technology certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Shanghai Sheng Jian Environment Technology

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Is There Any Growth For Shanghai Sheng Jian Environment Technology?

The only time you'd be truly comfortable seeing a P/E as low as Shanghai Sheng Jian Environment Technology's is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 25% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 2.9% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 25% each year during the coming three years according to the one analyst following the company. Meanwhile, the rest of the market is forecast to expand by 24% per annum, which is not materially different.

In light of this, it's peculiar that Shanghai Sheng Jian Environment Technology's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Final Word

The latest share price surge wasn't enough to lift Shanghai Sheng Jian Environment Technology's P/E close to the market median. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Shanghai Sheng Jian Environment Technology's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

Plus, you should also learn about these 3 warning signs we've spotted with Shanghai Sheng Jian Environment Technology (including 1 which can't be ignored).

You might be able to find a better investment than Shanghai Sheng Jian Environment Technology. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.